Japan’s plan for growth through TPP deal hangs in the balance

The Asahi Shimbun – Nov 10, 2016 – Donald Trump’s opposition to the Trans-Pacific Partnership, a pillar of the Abe administration’s economic growth strategy, means the free trade agreement is now on the verge of collapse following the billionaire developer’s shock election victory on Nov. 9.

Japan will now have to review its trade strategies, even though the 12 countries participating in the TPP negotiations, including Japan and the United States, largely agreed on the terms of the pact in autumn 2015.

Japan and the United States account for 80 percent of the total gross domestic product (GDP) of those 12 countries, which include Australia and nations in South America and Southeast Asia.

Consequently, the TPP had been expected to provide the building blocks for a new economic relationship between Japan and the United States, which at times have been locked in protracted trade friction.

South Korea, Japan’s main rival in the auto and electronic appliance manufacturing industries, has concluded its own free trade agreements with other countries and regions, including the United States, China and Europe.

Japanese business organizations insist that Japanese companies must compete on a level playing field with South Korean firms, at least in markets such as the United States and Europe.

The Abe administration viewed the TPP as a means to achieve that aim. But the scenario will be impossible to realize if Trump maintains his stance against the TPP after he assumes the U.S. presidency in January.

Japan will first try to conclude an economic partnership agreement (EPA) with the European Union before the year-end. However, the importance of the EPA with the EU is less than that of the TPP, chiefly due to the volumes of trade between the respective nations involved.

Japan is also aiming to conclude the Regional Comprehensive Economic Partnership (RCEP) agreement with 15 other countries, including China, South Korea, and nations in Southeast Asia.

However, the negotiations for the RCEP are making little headway. Tokyo has given up on its plan to reach an agreement before the end of this year.

Negotiations for a separate free trade agreement between Japan, China and South Korea are also deadlocked, though China and South Korea have reached a bilateral agreement.

Once Trump assumes the U.S. presidency, it seems likely that U.S. negotiations with Europe on the Transatlantic Trade and Investment Partnership (TTIP) agreement and an investment agreement with China will both stall.

If the United States, a flag bearer of free trade, begins to adopt protectionist policies, it will have a serious impact on the sluggish world economy.

According to the U.S.-based Peterson Institute for International Economics, in the case of a complete trade war in which the Trump administration introduces high tariff policies and China takes countermeasures, the U.S. economy will plunge into negative growth in 2019 with a loss of 4.8 million or so jobs.

“The scenario of activating the economy through liberalization of trade and investment to kick start the world’s economic growth is hitting a wall,” said Shujiro Urata, a professor of international economy at Waseda University’s Graduate School of Asia-Pacific Studies.

In response to Trump’s victory, a high-ranking Japanese government official noted that the Japan-U.S. alliance is “a cornerstone of our economic strategies.”

However, the Japanese government is struggling to come up with appropriate measures to deal with the Trump administration.

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